Discounter Five Below Inc. (NASDAQ: FIVE) could be the most-overpriced Stock in America.
Mr. Market was paying $158.15 for Five Below (FIVE) on 15 December 2020. Moreover, in 2020 Five Below’s share price rose from $127.65 on 2 January to $158.15 on 15 December.
Five Below is a small-box retailer that claims to operate over 1,000 stores in the United States. Five Below has an unusual business model in which everything it sells costs between $1 and $10.
Does Five Below Make Money?
Five Below (NASDAQ: FIVE) makes small amounts of money from that business.
Five Below reported a quarterly operating income of $24.25 million on 31 October 2020. That quarterly operating income fell from $33.14 million on July 31, 2020, and $144.10 million on 31 January 2020.
Coronavirus almost destroyed Five Below’s revenues in 2020. Five Below began 2020 at $687.13 million in quarterly revenues on 31 January 2020. Those quarterly revenues fell to $200.90 million on 30 April 2020 and rose to $426.11 million on 31 July 2020. Five Below’s quarterly revenues rose to $476.61 million on 31 October 2020.
Similarly, Five Below’s quarterly gross profit fell from $289.13 million on 31 January 2020 to $20.46 million on 30 April 2020. The quarterly gross profit rose to $139.84 million on 31 July 2020 and $151.10 million on 30 September 2020.
How Much Cash Does Five Below Generate?
I think Mr. Market overprices Five Below (FIVE) because it makes tiny amounts of money. For instance, a quarterly net income of $20.43 million on 31 October 2020.
Conversely, Five Below reported a quarterly operating cash flow of $59.84 million on 31 October 2020. The quarterly operating cash flow fell from $126.72 million on 31 July 2020 and rose from -$65.24 million on 30 April 2020. Five Below began 2020 with a quarterly operating cash flow of $185.17 million on 31 January 2020.
Five Below reported a negative quarterly ending cash flow of -$43.29 million on 30 September 2020. The quarterly ending cash flow fell from $90.58 million on 31 July 2020 and $69.76 million on 30 April 2020. Five Below began 2020 with a ending cash flow of $124.99 million on 31 January 2020.
Five Below pays little debt. It reported a $560,000 quarterly financing cash flow on 31 October 2020. That means Five Below’s borrowing exceeded its debt repayment by $560,000 in the last quarter.
However, Five Below has a small amount of debt. Five Below reported $1.426 billion total liabilities and no long-term debt on 31 October 2020.
What Value Does Five Below Have?
I think Five Below (FIVE) could run out of money and collapse because of its limited resources.
For example, Five Below had total assets of only $2.176 billion on Halloween Day 2020. In addition, Five Below had $213.79 million in cash and short-term investments on 31 October 2020.
Therefore, I think Five Below lacks the resources to survive another round of coronavirus. To elaborate, Five Below’s income is so low a few months of lost business could leave the company unable to pay its bills or stock the stores.
Thus, Five Below could fall into the retail death spiral if the coronavirus pandemic continues. The retail death spiral occurs when a company cannot pay its bills or buy inventory.
Significantly, Stockrow estimates that Five Below’s revenue growth shrank by 44.92% in the quarter ending on 30 April 2020. In contrast, Five Below’s revenues grew by 2.09% in the quarter ending on 31 July 2020 and 26.28% in the quarter ending on 31 October 2020.
Five Below is a Terrible Stock
I cannot see how Five Below (NASDAQ: FIVE) can survive with such roller coaster growth. In my opinion, Five Below is not a growth stock because its growth can end fast.
I advise investors to avoid Five Below because I think this retailer will collapse. I believe the financial numbers show Five Below is not making enough money to sustain its operations or justify the $158.15 share price.
I consider Five Below such a bad stock. I think there is no reason for anybody to buy it because Five Below does not pay a dividend. Hopefully, investors will stay far away from Five Below’s stock.
Originally published at https://marketmadhouse.com on December 15, 2020.